Pension reform: Consolidation is not the answer
Pennsylvania's pension funding problem didn't happen overnight, and you can't fix it overnight. Recently, there's been a lot of buzz about pension reform, and rightfully so. Pennsylvania is on the fast track to a crisis.
The commonwealth's pension programs for some 800,000 state workers and public school teachers are in the hole to the tune of $40 billion, a figure that's expected to climb to $65 billion by 2021 if lawmakers don't do something soon.
Hastened by Gov. Tom Corbett, the General Assembly and others are searching for solutions, some of which have come to light during a series of fact-finding meetings hosted by the Pennsylvania Employee Retirement Commission. The hearings have focused on the state's financial predicament, which may force more cuts in services to fund promised retirement benefits.
It appears the meetings have also served as a stage to exaggerate Pennsylvania's pension troubles, with calls to consolidate hundreds of healthy municipal plans to fund the debts of a few. This “redistribution of pension wealth” is a bad idea and penalizes the successful while rewarding those in trouble.
Yes, it's true that a few local governments have retirement programs that are underwater. But many communities oversee plans that are doing OK or much better than OK.
Proof of this comes from PERC itself, which measures the distress level of the 1,439 municipal pension plans that receive state aid. In 2011, 776 were classified as “not distressed,” while just 27, including those belonging to Pittsburgh and Philadelphia, were declared “severely distressed.”
This reality, however, hasn't stopped some from turning the pension problems of a few into a statewide epidemic. And what's their remedy? Lump everyone together, much like the commonwealth did for state employees and teachers, and create a single statewide municipal pension system.
The consolidation crowd needs to face the fact: The State Employees Retirement System and the Public School Employees Retirement System are bigger, but they're certainly not better. In fact, they are the lion's share of Pennsylvania's pension debt and demonstrate what can happen to large, one-size-fits-all systems.
Lawmakers should instead focus on the state and its more severely troubled pension systems. Then, after they know how to tame that $40 billion (and growing) beast, they should turn their attention to municipal pension plans. But rather than focus on consolidation, lawmakers should provide local leaders with commonsense reforms that not only preserve locally administered pension plans but also do something we all agree makes sense: save tax dollars.
There are some solutions already on the table that would help municipal pension plans right away. A proposal by the Coalition for Sustainable Communities would be a good first step. The measure would enable municipalities to move away from the defined-benefit plans mandated by law for some local police and firefighters and remove retirement benefits from the collective-bargaining process — a practice responsible for strapping current and future generations with budget-draining obligations.
The way I see it, the pension-crisis remedy shouldn't be to make the healthy swallow the same bad medicine as those in trouble. Instead, we should be tailoring solutions that keep healthy plans off life support and put ailing ones back on the road to recovery.
David M. Sanko is the executive director of the Pennsylvania State Association of Township Supervisors.